It first began transforming the global footwear industry over forty years ago. Now Nike (NKE) is transforming how it gets its shoes on customers’ feet.
Over the past four years, the $85 billion dollar Beaverton, Oregon based company has made significant investments in its direct-to-consumer business. Over the longer term, we’re bullish on the Nike story. But there will be bumps in the road.
“If you’re going to change up a paradigm that you built in 40 years, and you’re going to change it up in four years, things are going to happen,” says Retail analyst Brian McGough.
The maker of athletic footwear and apparel has been dinged by commentary from shoe retailers like Foot Locker. On recent conference calls with investors, execs at Foot Locker said “Adidas is on a great run, they're having a lot of success” and “Nike is resetting the price/value relationship of many of its shoes.”
The undertone? Nike isn’t doing so hot. To be sure, the stock reflects this negative sentiment. Shares of Nike are down -18% this year. While this short-term friction hurts Nike’s brand perception, the company may be setting itself up for long-term success.
According to McGough, over the long term, the direct-to-consumer business will become very accretive to the company’s bottom line. “The innovation that’s coming out of Nike right now is being kept at Nike [and not going to Foot Locker], at a higher margin and at a higher consolidated sales rate,” McGough says.
For patient investors, short term pain may equal long term gain.
